The ROI Revolution Blog
Two Simple Ways to Boost Customer Value for Subscription-Based Companies
March 30, 2009
With the ever increasing competitive nature of Google AdWords, businesses that rely on recurring revenue from a membership or software-as-a-service (SaaS) subscription model need advanced marketing tactics to stay alive. But merely staying afloat shouldn’t be an option — your goal should be total market domination!
Yet there are unique marketing challenges subscription-based companies face when acquiring new customers. First, it’s common to offer a free trial to get new members. Money isn’t collected for weeks or months. When marketing bills are due before revenue is collected, this can cause serious cash flow problems.
When you finally do start collecting money from your customers, each monthly payment is only a fraction of the lifetime value of the customer. If you don’t have smart marketing or exceptional cash reserves, your custom acquisition will be needlessly hamstrung. All things being equal, those who can afford to spend the most up front to acquire a new customer will dominate their market.
The following two tactics are relatively simple to implement and will dramatically boost your average customer value which will put you in a position to out-market your competition.
1. Immediate Upsells
A free trial can be a fantastic way to increase your conversion rate, but it doesn’t help your immediate cash flow needs. This delay in capital usually results in a decreased ability to acquire new customers.
Here’s a simple strategy to get paid immediately: you can offer a paid upsell opportunity as soon as a free trial account is activated. This can be a special price on a related product further down your funnel — or you can offer a special one-time price on an upgrade to a higher membership level. Let me explain…
Most membership sites have a variety of membership levels at various price points. When someone signs up for one of your lower membership levels, you can use the highest price plan as an immediate upsell.
Example: Someone signs up for a free trial to the “Basic” level which costs $30 per month. After their account is created, you take them to a page offering the “Advanced” level that usually runs $100 per month. The fee to lock in the “Advanced” level for the basic monthly price of $30 is a one-time charge of $125. Since the one-time price is just slightly more than a single month of the “Advanced” level, there is a strong incentive to snatch up this offer.
The additional advantage of this upsell offer is that the customer is likely to stick around longer since they are getting such a deal by only paying $30 per month for the top plan.
This works even better if you already require a customer’s credit card to begin their free trial. After the free trial has already been approved and the customer is taken to the “thank you” page, offer them a one-click opportunity to upgrade their account. Make it clear that the fee is charged immediately and that it is refunded if the customer cancels their trial. You’ll likely see at least 10% of the free trial members purchase this upsell offer.
2. Price Increases
By far, this is the easiest way to increase your customer value. In most cases your current price isn’t capturing enough value from your customers. There is a simple remedy to this problem… charge more.
If you are reluctant to charge more than your competition, keep in mind that your product is not a commodity. There’s no need to compete directly on price with your competitors. People are more inclined to pay according to the highest perceived value rather than simply the lowest price.
There’s also two tremendous side benefit to increasing your prices:
1. If you’ve got an email list of prospects, you can tell them you will be increasing the monthly price to $XX in 7 days. If they want to lock in at the lower rate, they need to sign up for their free trial now. This is an incentive like none other, especially since they risk nothing by simply signing up for a free trial.
2. All current customers will have a much stronger reason to value their membership and think twice about canceling. They are now part of the “inside club” that is locked in at the lower monthly rate. If they cancel, they lose this status.
You may not want to simply increase your prices and hope for the best. You can test this. Create a custom landing page for each pricing scheme you wish to test. Split AdWords traffic among the landing pages and monitor conversions for each. Then multiply the number of conversions each pricing scheme received by the estimated lifetime value for that pricing scheme. Whichever brings in the most value wins.
If you are constantly increasing your customer value you will come out of nowhere as the leader within your market. Your competitors will be left behind wondering why their traffic keeps decreasing. This is certainly the place you want to be.